Service sector drives growth in Asia as manufacturing slows

 Bernard Aw, Principal Economist, IHS Markit
Service sector drives growth in Asia as manufacturing slows

The following is an extract from IHS Markit's Asia monthly economic overview. For the full report please click the link at the bottom of the article.

The Asian economy saw sustained expansion in June, although growth of manufacturing activity weakened further, according to the latest PMI data. The Asia Composite PMI, compiled by IHS Markit from its various national surveys, rose to 52.2, slightly higher than 52.1 in May. June data brought the Q2 average to 52.0, largely unchanged from 52.1 in Q1 but still below the global PMI, which averaged 53.7. Historical comparison with GDP indicated that the Asian economy expanded at a rate of approximately 5.5% per annum over the first half of 2017.

However, the surveys showed that the gap between manufacturing and services widened further. The Asia services PMI indicated the fastest expansion for over 2½ years, while Asia manufacturing growth hit the lowest since last September.

The upturn in the Asia services PMI highlighted how Asia’s tertiary sector has gained momentum at the end of Q2. By industry, service providers dominated the Asian sector growth rankings, according to the Nikkei Asia Sector PMI. Over Q2 as a whole, service providers accounted for four out of the top five sectors (commercial & professional services, insurance, healthcare services and consumer services) in the league table.

The slowing in manufacturing growth has raised concerns as to whether further expansion in services could be affected in coming months. However, forward-looking indicators suggest that, while the divergence between the manufacturing and service sectors could persist, prospects for Asian manufacturers are looking brighter: faster growth in manufacturing new orders and improved optimism were seen in June, hinting that the slowdown could be coming to an end.

The headline Asia Manufacturing PMI showed a slight pick-up from May’s eight-month low, reflecting a rise in the number of Asian economies showing an expansion. Of the 12 Asian countries covered, nine saw manufacturing conditions improve, up from seven in May. Nevertheless, the surveys continued to show an uneven performance in manufacturing across the region.

The Philippines retained its lead in Asia, followed by Taiwan and Vietnam. South Korea eked out a fractional gain after ten months of deterioration, while Malaysia suffered a record fall in June.

Asia PMI and economic growth


Bernard Aw, Principal Economist, IHS Markit
 
Tel: +65 6922 4226

 
Bernard.Aw@ihsmarkit.com
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